This chapter is from the book

Southwest Airlines is a company that has defied the odds against success in the rough world of the airline industry and become a model for others to follow—a model that has been enormously difficult to copy. Why? Because would-be imitators copy the parts of the system that fit their mental models, but they don't copy the way these parts work together as a system. They fail to appreciate the fundamentally different way of thinking behind the Southwest Airlines system: systems thinking.

For decades, John Seddon has used systems thinking to dramatically improve service organizations. "To take a systems view is to think about the organization from the outside-in, to understand customer demand and to design a system that meets it," Seddon says. "To enable control in this high variety environment, it is necessary to integrate decision-making with work (so the workers control the work) and use measures derived from the work. . . . If workers are controlling the work, they need managers to be working on the things beyond the control of the workers which affect the system conditions: the way work works. The result is an adaptive, customer-centric system."1

Seddon's approach to systems thinking begins by asking an organization to answer five questions:2 (1) Purpose: What is the purpose of this organization? (2) Demand: What is the nature of customer demand? (3) Capability: What is the system predictably achieving? (4) Flow: How does the work work? (5) System conditions: What are the causes of waste in the system? We discuss these five questions in this chapter. Then we introduce the leader whose job it is to bring systems thinking to the creation of a product idea, the product champion. We will meet

A Different Way to Run an Airline

Are empty airplane seats waste? If you were an airline executive, what would your answer be?

Every month the Airline Transport Association publishes the load factors (revenue passenger miles divided by available seat miles—a utilization measure) for U.S. airlines. Business reporters are quick to praise airlines that increased load factors over the previous year. Financial analysts maintain that once an airline load factor exceeds its break-even point, more and more revenue will hit the bottom line. So it's pretty clear that empty seats are waste—unless you are an airline passenger. Or Southwest Airlines.

Completely full airplanes aren't very comfortable. It's hard to find space for carry-on luggage, and people carry on a lot more these days, since most U.S. airlines are charging to check bags. But the real problem comes during the holidays when bad weather wreaks havoc with airline schedules, and there is no spare capacity. Far too many airline passengers have spent Thanksgiving in Denver or Christmas in Chicago instead of getting all the way home for the holidays.

It costs airlines a lot to untangle the mess of a winter storm at a hub, especially with load factors approaching 100%. To soften the financial blow, U.S. airlines long ago stopped providing lodging for passengers who were stranded because of a weather-caused delay, but they still have to find a way to get those passengers to their destination. Inconvenienced passengers are not happy, but most airlines don't seem to worry about the cost of annoyed customers. After all, the bad weather wasn't their fault.

Over the years, Southwest Airlines has reported load factors that were approximately 10% lower than those of other airlines of similar size. This might lead you to suspect that Southwest has been struggling financially—but you would be wrong. Donald Converse summed up the amazing track record of Southwest Airlines in Fast Company magazine in June 2008:3

Founded in 1971, Southwest Airlines began to establish a consistent pattern of deviating from convention. In 1978 the airline industry was deregulated and 120 plus airlines have gone bankrupt since. Why, in this difficult environment, has SWA continued to grow and thrive? Notably, SWA is the only airline to continuously show a profit every year since 1973. How has SWA managed to increase its traffic by as much as 139%? Here are some facts that might help to understand how SWA has achieved this incredible record:

The company consistently leads the industry in low fares and dominates the short haul market with an average of 60% market share.

The company serves over 2400 customers per employee annually—making SWA employees by far the most productive workforce in the airline industry.

Employee turnover averages 6.4%—again one of the best records in the industry.

SWA is consistently ranked in the top 100 of the best U.S. companies to work for.

They have never been forced to lay off employees regardless of external market factors such as recession or high fuel prices.

They have the best record for baggage handling in the industry.

They have the best on-time performance record.

Fewest customer complaints.

Youngest fleet of airplanes, and the best safety record!

Southwest's stated purpose is to make flying possible for those who would not otherwise be able to afford it. Thus Southwest sees its main competitor as the car, not other airlines.4 Southwest started out in Texas serving three cities—Houston, Dallas, and San Antonio—that form a triangle, about a four-hour drive, or an hour flight, apart. About a year after it was founded, Southwest had four planes on these routes, but it was running out of money, so it sold one of the planes. However, executives decided that canceling a quarter of its flights would be a disaster—this would not lead to higher load factors; it would lead to many fewer customers.

This was the start of Southwest's famous ability to rapidly turn around aircraft at the gate. The ground operations manager decided that planes could be emptied of passengers and filled up for the next flight in ten minutes, allowing three planes to fly the schedule designed for four.5 What Southwest realized is that load factors don't take into account the time that airplanes spend on the ground. By operating with fewer planes, Southwest saved significantly on capital investment and labor costs. Maintaining the same number of flights provided plenty of options for passengers and empty seats for growing traffic and absorbing variation—at a small marginal cost. James Parker, former Southwest CEO, notes:6

With Southwest's predominantly short and medium haul route structure, an increase in turnaround times of 20 minutes per flight would reduce the available flying time for each aircraft by about two hours every day. Spreading this effect over the entire fleet of more than 450 airplanes would mean the loss of about 900 hours of flying every day. Remember, an aircraft doesn't make any money sitting on the ground. So Southwest would have to buy at least 80 more airplanes. With a list price of around $40 million per 737, this comes to a tidy sum of well over $3 billion. This is money Southwest doesn't have to spend because of its efficient turnaround.

Southwest realizes that increasing its revenue potential is more profitable than trying to make as much money as possible on every flight, and customers get more of what they want at the same time. Southwest's airplanes may be less full than those of its competitors, but the planes spend a lot more time in the air, which more than compensates for the lower load factors. By one account, the typical Southwest 737 is used 11.5 hours a day, compared with an average of 8.6 hours for other carriers.7 Rapid aircraft turnaround leading to high capital equipment utilization bears a resemblance to the use of short setup times in manufacturing, pioneered by Toyota. Both companies discovered new, counterintuitive ways to make more productive use of both capital equipment and people while maintaining increased flexibility in the face of variation in demand. In both cases, their approach trumped the apparent economies of scale enjoyed by their competitors.

Since Southwest can turn a plane around much faster than other airlines, the people involved can be assigned to a new plane more quickly, and thus they are more productive. Short turnarounds have been difficult for other airlines to copy; Southwest's times average 15 to 20 minutes faster than those of their best competitors.8 One of the reasons short turnarounds are so difficult to emulate is that many different departments must be coordinated in a short span of time: pilots, flight attendants, caterers, cabin cleaners, gate agents, operations agents, ramp agents, ticket agents, baggage agents, freight agents, fuelers, mechanics. Southwest nurtures a strong culture of cooperation across these departments; people from different areas routinely help each other out. At many other airlines, work rules and measurement systems discourage such cooperation.9

Any Pilot Can Fly Any Plane, Any Plane Can Fly Any Route

We were flying from Los Angeles to Denver on Southwest. We were pleasantly surprised by the waiting area: a double row of comfortable seats with small tables and power outlets in between, right at the gate, and free! It was just what we road warriors look for in an airline club room, especially when the flight is delayed. And our flight was late, due to fog in San Francisco. When it arrived, we experienced the famous rapid turnaround with a well-managed boarding queue. But alas, we were not going to depart on that plane; the pilot announced that it had a mechanical problem.

We were asked to go to another airplane and please take the same seat; we didn't have boarding passes, after all. The plane was about 70% full—typical for Southwest—so most of the center seats were empty and no one was too worried about seating. A quick exit from the plane and a short walk brought us to a gate where the plane we were now going to take was just pulling up. It was empty in short order, and two agents stood at the gate checking each of us off on a paper list as we boarded. Soon we were all in the same seats with the same crew and the same luggage in the hold. Less than a half hour after the mechanical problem was discovered, we were leaving in a different plane.

Not long after that trip we found ourselves in Atlanta, flying home to Minneapolis on a late-evening flight, this time on a different airline. Again, fog took its toll. As the evening wore on, our flight was delayed, first to 11:00 P.M. Then 11:30 P.M. Then a quarter past midnight. I checked the arrival time of the plane coming in to our departing gate to be sure we would have a plane. An arrival was scheduled at 11:05 P.M.—over an hour before our flight was scheduled to depart. Surely this could not be our plane. How could a simple turnaround take 80 minutes? We were soon to find out.

We went to the gate and found our future cabin crew already there; they'd been waiting for the plane for a couple of hours, just like us. In this traditional system, there was no concept that a flight and its crew could simply be assigned the next available plane; everyone had to wait for the appropriate aircraft to arrive. We could see why Southwest achieves higher productivity through its emphasis on simplicity: Any flight and any crew can use any available plane.

When the plane we were to take finally arrived, it seemed to take forever for people to get off. Of course it was completely full, but even worse, it was overflowing with carry-on luggage. The airline had a $15 luggage fee, which encouraged passengers to carry on everything they could. As we boarded, the same thing happened—the plane was completely full and almost everyone was overburdened with luggage. It took forever to get all the luggage stowed or checked. The impact of luggage fees on turnaround times seems to be lost on most airlines. One wonders if the fees cover the decreased aircraft utilization.

Mary and Tom Poppendieck

Jim Parker, Southwest's former CEO, claims that Southwest Airlines isn't really in the airline business at all. The company is in the customer service business; it just happens to fly airplanes.10 He believes that the secret to success in the customer service business is to take good care of your employees, because then they will take good care of your customers, and satisfied customers lead to a successful business. So Southwest focuses on three things: Create a great place to work, provide customers with what they really want, and make sure that the airline always makes a profit so it can stay in business for the long term.